It takes money to make money…
In addition to effort, often one or more founders will pay for the initial startup expenses or even set up a bank account and deposit some cash to be used for both initial and near-term future expenses.
In other cases, there may be some equipment required to start the business or the use of a car or truck, office space or other property that the founder provides to the company.
In both such cases, the founder is providing not only sweat equity but also a measurable amount of money. That funding should not be overlooked by the other co-founders. Seed-stage funding is not easy to come by and has a high value in terms of equity.
RULE 9:
Cash, property, and access to equipment all have value too.
My suggestion to teams is to initially set aside this value when negotiating the equity split. First, have the discussion on how to split up the 100% solely on the basis of sweat equity, ignoring the cash and other property provided to the company. Once that is agreed upon, then discuss the value of the seed funding, and add that into the equity split.
In the latter part of the conversation, consider how much equity you would have to provide to an investor who supplied the same amount of cash and/or property.
